There have been numerous discussions about the economic pros and cons of a phased-in $15 wage floor but not that many around the practical application, so I thought I’d share a recent situation I encountered.

Background: On January 1, 2017, the minimum wage in California increased to $10.50 per hour for employers with 26 employees or more (a large employer).

Question: A subsidiary employs 24 staff (i.e. it is a small employer), however it is 75 percent owned by a parent with 50+ employees (a large employer). Do the control group rules apply to the subsidiary and thus require it to implement the new minimum wage rules as if it were a large employer?

Response: As long as the subsidiary is the employer as reflected on the pay stubs and the Wage Theft Prevention Act notices, it is reasonable for the subsidiary to follow the rules for smaller employers. There are circumstances under which a parent can be held liable as the employer for wage/hour purposes, but for this sort of question, the key is really going to be the legal employer as reflected in these documents.

Additional Notes: • The California Department of Industrial Relations website states that Labor Code section 1182.12 defines “employer” as: “any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person includes the state, political subdivisions of the state, and municipalities.” (more here) • Note that Los Angeles has a different phase-in requirement (see here). For large employers, the minimum wage increases to $12.00 per hour effective July 1, 2017.

If you have any questions, please do not hesitate to reach out to your GHJ advisor or call us at 310.873.1600.

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Donella Wilson

Donella Wilson, CPA, leads GHJ’s Nonprofit Practice and is also President and Chief Philanthropy Officer of GHJ Foundation, GHJ’s vehicle for purposeful and proactive giving to the community. A leader in both the nonprofit and accounting communities, Donella was named a finalist in the 2021 Los…Learn More